Create a mock merchandising co
Create a mock merchandising company and demonstrate yourknowledge of accrual basis accounting and the double-entryaccounting system by creating a minimum of 10 original transactionsspanning a period of 3 months (Jan. 1 – Mar. 31) and completing therequirements below. Assume your mock company is a new company thatbegins operations on Jan. 1st . The transactions shouldinclude examples of accruals and deferrals and at least one ofeach of the following: financing a new business(e.g. issuing stock or borrowing), obtaining assets, incurringliabilities, earning revenue, and incurring expenses.
1. Write a list of at least 10 original transactions spanning afiscal quarter (e.g. Jan.1 – March 31) and following the guidelinesabove. The first transaction should be a financing transaction(issue stock or borrow).
2. Journalize each transaction.
3. Post the journal entries to accounts and compute the endingbalance (March 31) in each account.
4. Prepare a trial balance from ending account balances.
5. Write a list of at least 5 adjusting entries for thequarter-ended March 31 related to transactions prepared in step 1.Note that adjusting entries do not have an effect on the cashaccount.
6. Journalize the adjusting entries. Note that adjusting entriesdo not affect the cash account.
Answer:
XYZ LTD. CLOSSES ITS ACCOUNTS ON 31MARCH
1) 10 TRANSACTIONS
- XYZ LTD. COMMENCE BUSINESS WITH A CAPITAL OF RS 20 LAKH ON 1JANUARY
- BORROWS 30 LAKHS FROM SLM ENTERPRISE ON 1 JANUARY
- PURCHASE THE PLANT AND MACHINERY FOR RS 25 LAKH ON 1JANUARY .DEPRECIATION IS CHARGED 10% BY STRAIGHT LINE METHOD
- BOUGHT GOODS FROM MOHAN TRADERS FOR RS. 1,25,000 ON 2 JANUARYON CREDIT
- SOLD GOODS TO SHIVAM ENTERPRISE ON 5 JANUARY FOR RS. 95000 .30% AMOUNT WAS RECEIVED IN CASH
- PAID RENT OF FACTORY FOR 12 MONTHS ON 30 JANUARY OF RS .36000
- INSURANCE PAID RS. 5400 FOR 9 MONTHS COMMENCING FROM FEBRAURYON 28 FEBRUARY
- RECEIVED RS. 60000 FROM SHIVAM ENTERPRISE ON 1 MARCH
- PURCHASE FURNITURE FOR CASH FOR RS. 50,000 DEPRECIATION 15%WILL BE CHARGED ON 1 MARCH
- COMMISION INCOME RECEIVED FOR RS. 45000 ON 31 MARCH FOR JANUARYAND FEBRUARY . MARCH INCOME IS STILL NOT RECEIVED
2) JOURNAL ENTRIES
1 JAN CASH Dr.20,00,000
TO XYZ LTD. 20 ,00,000
( BEING CAPITAL INTRODUCED BY XYZ LTD.)
1 JAN CASH Dr. 30,00,000
TO SLM ENTERPRISE 30,00,000
(BEING AMOUNT BORROWED FROM SLM ENT.)
1 JAN PLANT & MACHINERY Dr. 25,00,000
TO CASH A/C 25,00,000
(BEING PLANT AND MACHINERY PURCHASED)
2 JAN PURCHASES A/C Dr. 1,25,0000
TO MOHAN TRADERS 1,25,000
(BEING GOODS BOUGHT ON CREDIT)
5 JAN SHIVAM ENTERPRISE Dr. 66500
CASH A/C Dr. 28500
TO SALES A/C 95000
(BEING 70% GOODS SALE ON CREDIT AND ELSE IN CASH)
30 JAN RENT A/C Dr. 9000
PREPAID EXPENSE Dr. 27000
TO CASH A/C 36000
( BEING RENT PAID FOR 12 MONTHS)
28 FEB INSURANCE A/C Dr. 1200
PREPAID EXPENSE Dr. 4200
TO CASH A/C 5400
( BEING INSURANCE PAID FOR 9 MONTHS)
1 MARCH CASH A/C Dr. 60000
TO SHIVAM ENTERPRISE 60000
(BEING AMOUNT RECEIVED FROM DEBTORS)
1 MARCH FURNITURE A/C 50000
TO CASH A/C 50000
( BEING FURNITURE PURCHASED)
31 MARCH CASH A/C Dr. 45000
ACRUED INCOME 15000
TO COMMISION 60000
( BEING COMMISSION RECEIVED FOR 2 MONTHS)
31 MARCH DEPRICIATION A/C Dr. 63125
TO P&M A/C 62500
TO FURNITURE A/C 625
(BEING DEPRECIATION CHARGED ON P&M AND FURNITURE)
3) LEDGER A/C
1- CASH A/C
| PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
| BY XYZ LTD. | 20,00,000 | TO P&M | 25,00,000 |
| BY SLM ENTERPRISE | 30,00,000 | TO RENT A/C | 9000 |
| BY SALES A/C | 28,500 | TO PREPAID RENT | 27,000 |
| BY SHIVAM ENTERPRISE | 60,000 | TO INSURANCE | 1200 |
| BY COMMISION | 45,000 | TO PREPAID INSURANCE | 4200 |
| TO FURNITURE | 50,000 | ||
| TO BALANCE C/D | 2542100 | ||
| 5133500 | 5133500 |
2- P& M A/C
| PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
| BY CASH | 2500000 | TO DEPRECIATION | 62500 |
| TO BALANCE C/D | 2437500 | ||
| 2500000 | 2500000 |
3- SLM ENTERPRISE
| PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
| TO CASH A/C | 3000000 | ||
| BY BALANCE C/D | 3000000 | ||
| 3000000 | 3000000 |
4- FURNITURE A/C
| PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
| BY CASH | 50000 | TO DEPRECIATION | 625 |
| TO BALANCE C/D | 49375 | ||
| 50000 | 50000 |
5- MOHAN TRADERS A/C
| PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
| TO PURCHASES A/C | 125000 | ||
| BY BALANCE C/D | 125000 | ||
| 125000 | 125000 |
6- SHIVAM ENTERPRISE
| PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
| BY SALES A/C | 66500 | TO CASH A/C | 60000 |
| TO BALANCE C/D | 6500 | ||
| 66500 | 66500 |
7- PREPAID EXPENSES A/C
| PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
| BY CASH A/C | 27000 | ||
| BY CASH A/C | 4200 | TO BALANCE C/D | 31200 |
| 31200 | 31200 |
4) TRIAL BALANCE
| PARTICULARS | DEBIT | CREDIT |
| CASH A/C | 2542100 | |
| P&M | 2437500 | |
| SLM ENTERPRISE | 3000000 | |
| FURNITURE | 49375 | |
| MOHAN TRADERS | 125000 | |
| SHIVAM ENTERPRISE | 6500 | |
| PREPAID EXPENSES | 31200 | |
| DEPRICIATION A/C | 63125 | |
| COMMISION A/C | 60000 |
| RENT A/C | 1200 | |
| INSURANCE A/C | 9000 | |
| ACCRUED INCOME A/C | 15000 | |
| XYZ CAPITAL A/C | 2000000 | |
| TOTAL | 5185000 | 5185000 |
5) 5 ADJUSTING ENTRIES
- INTEREST 9% P.A. IS OUTSTANDING ON AMOUNT BORROWED FROM SLMENTERPRISE ON 31 MARCH FOR 3 MONTHS
- 5% DISCOUNT RECEIVE FROM MOHAN TRADERS ON 31 MARCH
- SHIVAM ENTERPRISES FAILED TO PAY BALANCE AMOUNT
- SALARY PAID ARE DUE FOR 3 MONTHS OF RS. 15000
- DEPRICIATION HAS TO BE CHARGED 10% INSTEAD OF 15% ONFURNITURE
6) JOURNAL ENTRIES
1- SLM ENTERPRISE 45000
TO OUTSTANDING INTEREST 45000
(BEING INTEREST DUE ON BORROWED FUNDS)
2- MOHAN TRADERS Dr 6250
TO DISCOUNT RECEIVED 6250
(BEING DISCOUNT RECEIVED FROM CREDITOR)
3- BAD DEBTS A/C Dr. 6500
TO SHIVAM ENTERPRISE 6500
(BEING DEBTOR FAILED TO PAY BALANCE AMOUNT)
4- SALARY Dr. 15000
TO OUTSTANDING SALARY 15000
( BEING SALARY DUE FOR 3 MONTHS)
5- FURNITURE A/C 208
TO DEPRECIATION A/C 208
( BEING DEPRECIATION ENTRY CORRECTED)
PLEASE PROVIDE THE FEEDBACK
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